Reports of Retail's Death Are Greatly Exaggerated

NEW YORK (TheStreet) -- October retail sales came in much stronger than expected, with a 4.2% unadjusted increase from 2012, according to the National Retail Federaton. That comes after strong earnings reports from retail giants including Wal-Mart (WMT), Walgreen (WAG), Best Buy (BBY) and Home Depot (HD).

With the sector robust for 2013, investors should expect a continuing healthy stock performance for the retail industry leaders.

In more bullish news for the retail sector, the September report was revised upward by the U.S. Census Bureau from a drop of 0.1% to no decline. Contributing to the recent good news for stores across the nation are lower gas prices, higher home sales and a stock market setting new records. Those factors and more engender a more bullish economic outlook, which leads to greater spending. Overall, retail sales for October were $428.1 billion, up 3.9% from October 2012.

As the nation's largest retailer, Wal-Mart is an obvious indicator of the sector.

In a bullish reversal, Wal-Mart's recent earnings beat the estimates of Wall Street by 1 cent after falling short the previous two quarters. For the fiscal third quarter, Wal-Mart posted net income of $3.7 billion, which was a 2.8% gain from a year ago. Earnings per share were $1.14, up 6.5%. Total revenue for Wal-Mart was $115.7 billion, up 1.7% from the same period in 2012.

Walgreen, the biggest drugstore chain in the country, reported earnings that were up 86% from last year. Revenue were a record $72.2 billion. Adjusted earnings were a record $72.2 billion: at 73 cents a share, this result beat the analyst community prediction of 72 cents. Quarterly sales rose by 5% for Walgreen to $17.9 billion.

America's largest electronics chain, Best Buy reported net earnings of $54 billion. That was a reversal from a net $10 million loss from 2012. Making it even more bullish was that it beat what analysts were expecting.

As the nation's premier home improvement chain, with more than 2200 stores, Home Depot has naturally benefited from the revitalized American housing market. In its most recent earnings, Home Depot reported a 7% increase in sales to $19 billion. Profits jumped 47% to $1.4 billion. The analyst community is also bullish on the future for these retail leaders.

For the short term, the National Retail Federation is bullish for the holiday season, predicting a 3.9% in sales. Matthew Shay, president and chief executive of the National Retail Federation, stated that consumer spending "is growing as we head into the holiday shopping season and the timing couldn't be better. Consumers seem to have found some sense of confidence, driven, in part, by lower gas prices. While positive gains were seen in most retail categories, retailers will continue to rely on heavy promotions to drive traffic and sales this holiday season."

Over the next five years, earnings per share are expected to increase by 16.8% for Home Depot, about triple the growth rate for the last half decade. Walgreen is expected to register a higher earnings-per-share growth rate of 12.95% for the next five years, almost triple that posted for the previous time segment, too.

While earnings per share growth were down over the last five years 19.80% for Best Buy, it is expected to climb by 5.52% for the next five. Earnings per share are projected to increase by 8.70% for Wal-Mart for the next five years, with the previous period's growth being 9.70%.

While the stock market has been strong, SPDR Retail (XRT), the main exchange traded retail fund, is up nearly 40% for 2013, with the Dow Jones Industrial Average rising about 25% since the first of the year.

For individual stocks, Walgreen and Home Depot should continue to gain from changes in the American economy.The Affordable Care Act will increase spending on health care: Between that and more Americans getting older, Walgreen should do well as a result of its prescription drug business. Home Depot should benefit from the revitalized American housing sector.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Jonathan Yates is a financial writer who has had thousands of articles appear in periodicals and Web sites such as TheStreet, Newsweek, The Washington Post and many others. He has degrees from Harvard University, Georgetown University Law Center and The Johns Hopkins University.